Hibbett Sports Takes Second Quarter Hit on Weaker Footwear Results

“We want to be absolutely conservative,” said Mickey Newsome, Hibbett's chairman and CEO, on a conference call. “There's just so much uncertainty in front of us and we don't want to have to keep changing things. We just want to be very conservative and beat what we put out there.”

For fiscal 2010, earnings are now expected to range between 85 cents to 95 cents a share, down from a prior view of $1.03 to $1.17. Comps for the second half are expected to be flat to down 4.0% versus previous guidance calling for positive single-digit comps. Footwear is now planned to be down mid- to-high single digits for the year.
Comps in the quarter tumbled 10.5%.

 

Comps were down high-single-digits in both May and June, and down mid- to-high teens in July.

Newsome estimated that last year's second quarter stimulus checks affected its Q2 comps this year by approximately 5%. Another 1% to 2% of the decline in comps reflects the shift in tax-free holidays. Ten of the twelve states in its area shifted their tax-free holidays from the second quarter last year to the third quarter this year.

Among categories, footwear was off mid- to-high teens across all genders in what company president and COO Jeff Rosenthal called “a very tough quarter” for the category. Women's footwear and men's running were particularly weak. Men's running is being dragged down by fashion styles as technical styles were “very good.” Another bright spot was cleated, up low-single-digits.

In apparel, college licensed was off low-single-digits in the quarter, pro licensed fell double digits and activewear was down in the low-single-digits. Women's and kids apparel both comped positive. Equipment was down in low-single-digits although fitness, football, basketball and volleyball comped positive.

Accessories, which consists of socks, shoe care, sunglasses and miscellaneous accessories, comped up double-digits. Helped by an increasing selling emphasis at the store level, items per transaction in accessories were up mid-single-digits. Rosenthal also noted that its E3 automatic replenishment system “has continued to be a major force” in apparel, equipment and accessories. About 30% of the business is expected to be under replenishment by Spring 2010, up from 24% currently as more footwear is added.

Strip mall locations, which account for 75% of its real estate mix, continued to outperform malls, while non-urban stores outperformed the urban segment.

The 250 basis point gross profit decline reflected greater off-price sales in footwear  Average price were down mid-single-digits. SG&A expense grew 1.9% but was down 4.4% on a per store basis.  While inventories increased 5.2%, they decreased 1.3% on a store-by-store basis and were in line with plan. EPS fell to 4 cents a share from 17 cents in Q2 last year and missed Wall Street's consensus estimate of 10 cents.
Looking ahead, Hibbett's overall comp trend has improved so far in the third quarter and is now in the negative low-single-digits. The retailer also has not yet comped the tax free holiday in the state of Texas from last year because that state moved the holidays back one week. Ten percent of its stores are in Texas. Said Newsome, “We believe the consumer is absolutely buying closer to need.”

Newsome also noted that several states, including Arkansas, North Carolina, and parts of Florida have moved school start dates back one to two weeks. This will hurt comps in the first part of August but provides a boost in the second part of the month.

But most of the questions in the Q&A session focused on the weakness in footwear, which came after a mid-single-digit gain in Q1. Footwear began weakening in March before the impact of stimulus checks and BTS shift but “got certainly more negative” in May, June and July.
“We really believe a lot of it is coming from the stimulus and the shift in back-to-school,” said Rosenthal. “In August, we are seeing some rebound back in footwear – not that it's at the levels we want it to be, but it is a lot better than it was.”

Nonetheless, Rosenthal said although Hibbett will continue to position itself around premium offerings and marquee product, “we do need to make some changes, obviously, to get the business better.”

On the one hand, the mix is expected to shift “a little bit more performance” and away from fashion. He believes the strength in cleats is because it's filling “a need with somebody absolutely who wants to play baseball or football or soccer. So we're seeing some pretty good increases there and we expect that to continue.” Hibbett also intends to increase buys in technical styles such as Asics, Brooks and Nike performance running shoes.

Rosenthal also said the company is looking to add more value pricing to its mix. But he also said stores need to do a better job calling out values. Said Rosenthal, “We need to do a much better job letting customers know inside our box on where that is.”

A boost is also expected from significant expansion in The North Face apparel and accessories in the second half of the year  The stores are also adding a number of “niche brands” that management declined to name for competitive reasons.

Said Rosenthal, “We're still very high on apparel and equipment and we do believe footwear will be better on the second half of the year.”
The company also indicated team business  is only doing about $10 million a year but is outperforming retail.

“It's a whole different model, but their business is good,” said Newsome. “It's real interesting. I think high school sports is still going to be there and their business has been very good this year.”